Mar 1, 2023
The cannabis business is profitable. But, setting up and running this business successfully isn’t easy for an owner because of restricted funding. As the cannabis business is still not legalized, owners don’t receive loans from traditional banks. Lenders hesitate to lend money to an illegal business thinking they will not get the returns and they might get stuck in unwanted situations.
But, this doesn’t mean you cannot operate your cannabis business. In the industry, there are several financing options to help you set up and run your business. You can apply for cannabis business loans. You will not qualify for a small business loan through every bank but can receive it through a credit union or a bank that advertises its willingness to work with the cannabis industry. The thing is you will have a better chance of securing business loans through these cannabis-friendly lenders.
With traditional banks, there are multiple business loan options. But, here, things are a bit restricted for you. It’s better to understand your options before approaching your lender.
To cover equipment costs for your new or growing business, you can apply for equipment financing. You can use the fund received under equipment financing to lease the equipment at a small interest rate or purchase it outright. The policy and the application process might be different for leasing and purchasing the equipment.
Due to the lengthy waiting period, cannabis businesses experience a poor cash flow. Sometimes, the gap between opening an invoice and receiving payment is very long. To overcome cash flow issues, you can opt for invoice financing. It is a type of financing that allows borrowers to receive partial repayment for open invoices. This results in a more regular cashflow.
Compared to other cannabis business loans, it's a bit more difficult to qualify for commercial real estate loans. If you want to purchase the property for your dispensary or manufacturing facility, apply for commercial real estate loans. Your loan might get approved if you are lucky.
This is the last option for cannabis business owners. If you don’t receive any positive response from other cannabis financing options, go for merchant cash advances. Through cash advances, lenders provide you with fast capital. The only thing is that merchant cash advances have short terms between four to twelve months. You need to show substantial revenue to receive this funding.
These are the common cannabis business loan options. Rest, it depends on your cannabis-specific lenders. If possible, they might offer you other funding options for your cannabis business. It all depends on how you want to raise funds for your cannabis business.
No. The capital amount you receive under cannabis business loans depends on multiple factors. A few of the factors that decide the capital amount for the cannabis business are credit score, personal credit history, financial records, type of company, desired term length, annual sales for established businesses, business plan, and previous bank statements.
The list of factors might increase or decrease based on the lender you connect with. Just keep in mind that processing and approval for cannabis business loans depend on the individual rules of the lenders. There are no such standard rules for granting cannabis business loans.
An important point-Other than these factors, the amount you borrow for your cannabis business depends on the legalization of cannabis in your state. If you are living in a state that has not legalized cannabis, you will be in a more challenging position to receive funding for your cannabis business.
Yes. Like other business entities, cannabis business owners can apply for more than one business loan. As the business loan types are different, things will not conflict. The processing and approval will be different for two different cannabis business loan types.
The only obstacle is the lender. If the lender isn’t comfortable lending more money, it might be difficult for you to use two business loans. You can approach two different lenders, but the condition will be the same because both lenders will check your past financial records, which include the loan amount as well. In case they approve, they might charge a higher interest rate.
Sometimes, the lenders are not concerned. They just consider the business status and lend money. Two or more business loans for a cannabis business don’t matter to them. They just follow standard norms for the application and processing of cannabis business loans.
· High-interest rates-One of the major reasons for charging high-interest rates is the refusal of traditional banks to grant cannabis business loans. Private or non-bank lenders justify this by mentioning uncertainty in market conditions, federal law enforcement, and other types of issues. This isn’t going to reduce.
· Non Disclosure of cannabis lenders- Most states and their jurisdictions require disclosures of cannabis lenders. But, lenders often overlook this aspect. If the lender doesn’t provide disclosure info, the borrower will bear the brunt of the regulatory penalties. For both the lender and borrower, considering disclosure requirements upfront is important.
· Everything cannot be collateralized- Lenders want security, so they ask cannabis owners to provide some kind of tangible or intangible assets. But, there are many things that cannabis lenders cannot collateralize. Sometimes, this becomes a big problem for borrowers.
For several affordable lending alternatives, Royale Capital is the only option for you. If you are looking for cannabis business loans in Canada, Royale Capital will help you. Our experts will assist you in selecting one of the best business loan options for your cannabis business. Even if your credit score is not good or you have been turned down for a typical business loan, we will help you.
With us, you don’t have to look for another cannabis business loan lender.